May 2018 Q2
Big Hand Behind Company Limited (BHBCL) is a well-established, family business which has been in operation for the past fifty years. It obtains raw materials from a large number of suppliers. The Purchasing Manager explained that using a large number of suppliers is necessary so that the company does not become too reliant on a few of them. However in recent times the quality of the components supplied has been variable and delivery times unreliable. The company has started experiencing shortages in supplies at a time when its suppliers continued to supply its competitors. The Managing Director has proposed adopting a single sourcing approach in obtaining raw materials
Required:
a) Explain how BHBCL can deploy good Supply Chain Management techniques to streamline its purchasing operations. (8 marks)
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- To obtain the best possible purchase prices – bulk buying contracts.
- To improve quality in the future – quality standards can be agreed.
- To ensure continuity of supply during periods of limited availability.
- To tie the supplier to the organisation – reducing the supply options of competitors
b) Explain Single Sourcing. (2 marks)
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Single Sourcing is a practice of using one supply source without a competitive bidding process for a justifiable reason. A particular supplier is purposefully chosen by the buying organisation, even when other suppliers are available.
c) Explain THREE disadvantages of Single Sourcing (6 marks)
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- It is more difficult for the buyer to be sure that he/she is keeping the company competitive if there is only one source.
- In periods of tight supply, the buyer may be at a disadvantage in being able to ask other suppliers to accept orders.
- Other suppliers may lose interest in trying to compete for the business if they see that a sole source situation is likely to persist.
- There is a real risk if the single source has a catastrophic event, gets bought by a competitor or has financial problems, etc.
(Any 3)
d) If the company decides to follow a strategic approach to supply, describe TWO organisational factors needed to be integrated, co-ordinated and developed. (4 marks)
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- Organisational structure: The type of structure adopted by the organisation in terms of how the other functional areas interact with each other must be taken into consideration.
- Relationship portfolio: The relationship between the suppliers and the organisation must be considered.
- The organisation should match the benefits to be enjoyed to the costs involved in the transactions and take a decision.
- Skills and competencies: The skills and competencies of the staff must be assessed to determine whether they fit the adopted strategy.
- Performance measures: The organisation must implement monitoring and control measures to streamline the adopted strategy. (Any 2)